Engineering company IRB Infrastructure, on April 25, 2017, became the first firm to announce a public offer in the infrastructure investment trusts (InvITs) space, with a Rs 5,000-crore plus public issue of its fund opening on May 3, 2017. The IPO will close on May 5 and commands a price band of Rs 100-102 per unit.
InvITs are debt instruments that can be traded in the market and can act as investment vehicles for the sponsors. The listing of instruments enable the promoters of infrastructure, to monetise completed assets and raise funds for other long-term projects.
IRB’s InvIT fund expects to raise Rs 5,035 crore, comprising fresh issue of units aggregating to Rs 4,300 crore and an offer-for-sale of nearly 3.48 crore units, by IRB Infra Developers and its arms – Modern Road Makers, Aryan Toll Road, ATR Infra and Ideal Road Builders, the company said. The InvIT has six operational road assets to begin with, covering 3,000-lane kms spread across five states.
“The majority of the IPO’s proceeds, amounting to Rs 3,350 crore, will be utilised to repay the external debt of the underlying special purpose vehicles (SPVs) and the remaining Rs 1,700 crore will be utilised to pay back the sponsors’ sub-debt and equity. The Rs 1,700-crore payback will improve IRB’s net debt-equity ratio to 1.8:1 from 3:1,” chairman and manging director, Virendra Mhaiskar said.
After the issue, the trust is likely to offer a 12 per cent return to mutual funds and foreign institutional investors and 10 per cent to high net worth individuals and retail investors. The launch of the InvIT IPO, heralds an era that enables us to unlock capital and reinvest in new projects and simultaneously provide investors an opportunity of benefiting from the cash flows generated from the completed projects, Mhaiskar added.
In the InvIT fund, at an enterprise value of Rs 5,992 crore, IRB as a sponsor, will be holding Rs 900 crore worth of units, which is 15 per cent of the enterprise value, he said. Mhaiskar further said post-IPO, IRB will bid for new projects and also realise the construction margin and once its cash flow stabilises, it will offer it to the trust, which can then get a stable and strong yield on these operational assets for its unit holders. “Since our Amritsar-Pathankot road project has also completed two years of operations, we will include it in the trust over the next six months, making it the seventh asset under the InvIT fund,” he said.
IDFC Bank, Credit Suisse Securities and ICICI Securities, are the lead managers to the issue, while Karvy Computershare is the register to the issue. The trust has been assigned ‘AAA’ (stable) rating by both, Care and India Ratings up to debt level of Rs 1,000 crore. IRB’s total road portfolio comprises 22 projects covering 10,000-lane kms across eight states, of which 14 are already operational. GMR Infra, MEP Infra and IL&FS Transportation, also have investment trusts registered with the SEBI.